investing in supply chain preparedness · investing in supply chain preparedness iii figure 3:...

INVESTING IN SUPPLY CHAIN PREPAREDNESS

A COOPERATIVE STUDY BY HELP LOGISTICS AG, KUEHNE LOGISTICS UNIVERSITY AND UNICEF (THROUGH THE GLOBAL LOGISTICS CLUSTER)

JANUARY 2019

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Investing In Supply Chain Preparedness I

INVESTING IN SUPPLY CHAIN PREPAREDNESS A Cooperative Study by HELP Logistics AG, Kuehne Logistics University

and UNICEF (through the Global Logistics Cluster)

EXECUTIVE SUMMARY In view of the ever-increasing humanitarian needs and the growing funding gap (Figure 1), actors in

the humanitarian space are asked to look into different and new ways of operating to ultimately

achieve more with less.

Figure 1: Funding gap (OCHA 2017)

Recent studies carried out by HELP Logistics and the Kuehne Logistics University (KLU) have analysed

the expenditures of 5 organisations in 23 emergency operations between 2005 and 2018. The studies

revealed that an average of 73% of the total expenditure was spent in the supply chain (Figure 2). It follows that efficiencies must be found here if the humanitarian community is to effectively meet the

increasing needs with the available resources. Under its strategic pillars ‘Advocacy’ and

‘Preparedness’, the Global Logistics Cluster (GLC) has been advocating for more studies to support its

partners in increasing visibility on humanitarian supply chain and identify opportunities to improve supply chain efficiency. In this context, UNICEF was put forward by the Logistics Cluster Community

as a case study together with other partners such as Action Contre la Faim (ACF) France, the

International Federation of Red Cross and Red Crescent Societies (IFRC), Save the Children

International (SCI) to a second series of studies in order to identify potential triggers for cost and time savings in the supply chain.

Investing In Supply Chain Preparedness II

Figure 2: Worldwide expenditure analysis

HELP Logistics and the KLU developed a dynamic return on investment (ROI) model, based on a pre-

existing preparedness framework (Wassenhove 2006), to investigate the saving potential of supply

chain preparedness investments. The study set out to prove the statement that every dollar (USD) invested prior to a disaster can save up to 7 dollars (USD) in the response (United Nations

Development Programme (UNDP), 2012). The model analyses data from a real disaster context and

compares scenarios without and with investments considering the available preparedness time until

the disaster strikes. It takes into consideration the interdependencies across the different investments and the impact generated.

This report focuses on the assessment for UNICEF’s relief operation in South Sudan and was conducted between August and November 2018 with support from its Headquarters in Copenhagen

and Country Office in South Sudan. UNICEF, being an organisation that aims at using a holistic,

efficient and sustainable approach to improve the situation of children around the globe, chose the

disaster context of the ongoing South Sudan complex emergency and the supply of squatting plates to the affected country. The model showed that by investing in key elements such as Personnel,

IT/Processes, Supplier Engagement, Prepositioning as well as Local Actors/Community, significant

time and cost savings are possible (Figure 3).

Investing In Supply Chain Preparedness III

Figure 3: Study results

Based on the available data, the model shows that, with a total invested amount of around USD

59’000 in supply chain preparedness measures (for squatting plates) over a period of 198 days, cost

savings of USD 241’000 could be generated resulting in a return on investment ratio of 1:3. Besides the financial saving potential, the model calculated a possible lead time reduction of up to 38 days in

comparison to the scenario with no investments. It should be noted that the operational

environment in South Sudan is highly complex with many external factors which are impacting the

supply chain performance and which cannot or can only partially be influenced through the investment measures of the model. Furthermore, the full end-to-end supply chain dataset necessary

to run the model (e.g. cost, lead times and capacities) was not available resulting in additional

assumptions. Subsequently, not all possible supply chain processes could be reflected in the model.

However, similar studies conducted with ACF France, IFRC and SCI confirmed the positive Return on

Investment ratio and demonstrated that supply chain and logistics is the backbone and key success

factor in emergency operations. In addition, it can be reasserted that preparedness measures have a huge potential to do more with less. Critical stakeholders such as humanitarian organisations,

commercial companies, governments and donors should feel encouraged to put more focus on the

optimisation of supply chain processes by investing earlier and smarter to elevate humanitarian

assistance to a more effective and efficient level.

Investing In Supply Chain Preparedness IV

CONTENTS

EXECUTIVE SUMMARY ................................................................................................................... I

CONTENTS .................................................................................................................................... IV

LIST OF FIGURES ............................................................................................................................ V

LIST OF ABBREVATIONS ............................................................................................................... VI

1. INTRODUCTION ......................................................................................................................... 1

2. METHODOLOGY AND MODEL FRAMEWORK ........................................................................... 1

3. APPLICATION OF THE MODEL ................................................................................................... 3

3.1 Phase 1: Define Baseline Scenario ............................................................................................................. 3 3.1.1 Develop Common Understanding of the Emergency Supply Chain .......................................................... 3 3.1.2 Define the Disaster Context and Response Operation Parameters .......................................................... 4 3.1.3 Describe the Baseline Scenario ................................................................................................................. 5 3.1.4 Inject Data for the Baseline Scenario Model ............................................................................................. 6

3.2 Phase 2 Design Investment Scenario ......................................................................................................... 6

3.3 Phase 3 Calculate the Return on Investment ........................................................................................... 10

4. CONCLUSION .......................................................................................................................... 11

ACKNOWLEDGEMENTS .............................................................................................................. 13

REFERENCES ................................................................................................................................ 13

Investing In Supply Chain Preparedness V

LIST OF FIGURES

FIGURE 1: FUNDING GAP (OCHA 2017) .................................................................................................... I

FIGURE 2: WORLDWIDE EXPENDITURE ANALYSIS ................................................................................... II

FIGURE 3: STUDY RESULTS ..................................................................................................................... III

FIGURE 4: ARCHITECTURE OF THE ROI MODEL ....................................................................................... 1

FIGURE 5: METHODOLOGY OF THE ROI MODEL ..................................................................................... 2

FIGURE 6: GENERAL UNICEF SUPPLY CHAIN IN THE CONTEXT OF SOUTH SUDAN ................................. 4

FIGURE 7: AIRPLANES IN SOUTH SUDAN ................................................................................................ 5

FIGURE 8: SUPPLY CHAIN IN UNICEF'S BASELINE SCENARIO .................................................................. 6

FIGURE 9: INVESTMENTS MADE AT DAY 198 ........................................................................................ 10

FIGURE 10: OVERALL RESULTS AT DAY 198 ........................................................................................... 10

FIGURE 11: ROI OVER TIME ................................................................................................................... 11

Investing In Supply Chain Preparedness VI

LIST OF ABBREVATIONS

ACF: Action Contre la Faim

GLC: Global Logistics Cluster

HQ: Headquarters

IFRC: International Federation of Red Cross and Red Crescent Societies

NFI: Non-food Item

NGO: Non-governmental Organisation

RoI: Return on Investment

SCI: Save the Children International

UN: United Nations

UNDP: United Nations Development Programme

USD: United States Dollar

Investing In Supply Chain Preparedness 1

1. INTRODUCTION

This report outlines the methodology of the Return on Investment (RoI) model and its application in

the supply chain preparedness project with UNICEF conducted from August to November 2018. It furthermore presents and discusses the findings of the project and concludes on potential next steps

to further enhance the response capacity of UNICEF and other actors operating in the humanitarian

space.

2. METHODOLOGY AND MODEL FRAMEWORK In the aftermath of the World Humanitarian Summit 2016, HELP Logistics and KLU developed an

analytical approach that equips humanitarian actors with an enhanced understanding of investment

opportunities in the context of supply chain preparedness. The approach resulted in a dynamic

model which outlines potential investment elements and evaluates their impact in terms of cost and time savings. The architecture of the model is based on Van Wassenhove’s Preparedness Framework

(2006) and is illustrated in Figure 4.

Figure 4: Architecture of the RoI model

The model operates under the following conditions and assumptions: § As proven in several supply chain expenditure studies conducted by HELP Logistics and KLU,

the majority of the expenditure of a relief operation is in the supply chain.

Assumption: saving potentials should be found here

§ Supply chains are complex systems with a great level of interconnectedness amongst actors

involved.


Assumption: supply chain investments cannot be looked at in isolation but from a holistic view point

§ The RoI model has been designed to reflect and analyse a real operational environment.

Assumption: the successful set-up and application of the model depend heavily on a critical

mass of data input provided by the participating organisation

§ Preparedness investments take time until they fully unfold.

Assumption: the time between investment decision and disaster to happen has strong impact on the calculated return of investment

§ Investments cost can be one-off (e.g. development of IT system) or continuous (e.g. holding

cost for pre-positioned items)

To apply the model in practice as part of an analysis project the methodology in Figure 5 is followed.

Figure 5: Methodology of the RoI model

Define Baseline Scenario (Without Investment)

• Develop common understanding of the emergency supply chain

• Define the disaster context and response operation parameters

• Describe the baseline scenario

• Inject data for the baseline scenario model

Design Investment Scenario

• Identify and discuss investment opportunities

• Analyse interrelations and synergies

• Evaluate impact on supply chain

Calculate Return of Investment

• Compare baseline and investment scenario

• Identify maximum RoI ratio in terms of cost and time

• Show trend of RoI over time


3. APPLICATION OF THE MODEL

3.1 Phase 1: Define Baseline Scenario The baseline scenario forms the foundation of the subsequent modelling process as it frames the

operational context and provides the first set of supply chain data. The following steps are essential

elements of the design phase and were completed in close collaboration with UNICEF staff from Headquarters and the Country Office in South Sudan.

3.1.1 Develop Common Understanding of the Emergency Supply Chain The United Nations Children's Fund (UNICEF) is a United Nations programme operating across the

globe to advocate for the protection of children's rights, to help meet their basic needs and to

expand their opportunities to reach their full potential1. When a major disaster strikes, UNICEF follows its humanitarian crisis protocol to plan and design the response according to the identified

needs. To provide assistance to the affected population in a timely manner, a well-functioning supply

chain is of utmost importance for UNICEF. Despite the fact that cash transfer programmes are on the

rise, there are, in most cases, still large amounts of cargo (relief items as well as equipment) which have to be moved to the country and to the disaster zone. Critical supply chain processes encompass

needs assessment, procurement and sourcing, transportation, storage and distribution. To source for

the urgently needed relief goods, UNICEF can draw upon the following sourcing options:

§ International suppliers

§ Established prepositioning hubs in Copenhagen, Panama and Dubai

§ Local suppliers in the country

The goods are then, subject to the chosen sourcing option, flown or shipped into the affected

country. Within the country, road transport is the usual choice to move goods further to the

response destination. However, in some countries, for example in South Sudan during rainy season, river boats as well as smaller aircrafts or helicopters are needed to overcome access constraints (e.g.

due to infrastructure damages or security reasons). Figure 6 shows UNICEF’s general supply set up in

the context of the on-going response in South Sudan.

1 https://www.unicef.org/about/who/index_mission.html


Figure 6: General UNICEF supply chain in the context of South Sudan

3.1.2 Define the Disaster Context and Response Operation Parameters The disaster to be analysed by the model should be an operation of significant size and relevance to

the organisation. The duration of the response reflects the time the organisation is operating in

emergency mode. The commodity is recommended to have a certain degree of standardisation, have a long shelf life, be distributed in large volumes and be available both locally and internationally.

UNICEF selected the context of the South Sudan slow-onset complex emergency (year 2017) due to

its magnitude, supply chain challenges and the significant preparedness efforts the organisation has put into the country. The response period to be analysed was estimated at 365 days. In regards the

chosen commodity, only squatting plates met the criteria (available locally and internationally) and

were procured in large quantities (18’300) within the actual operation.

Initially, two other commodities were also considered; an IEHK medical kit (basic unit) and tarpaulin

plastic sheeting, but neither met the criteria. The IEHK Kit was not available to procure locally and is

therefore sourced and assembled through the warehouse in Copenhagen. The tarpaulin is sourced

through a “piggy-back” solution; whereby UNICEF makes use of existing UN-wide shared framework agreements with standing suppliers. The data available for squatting plates was the most

comprehensive for analysis.


Figure 7: Airplanes in South Sudan

3.1.3 Describe the Baseline Scenario For the UNICEF baseline scenario, the squatting plates are assumed to be neither available locally nor

donated in-kind. Therefore, sourcing through the international warehouse in Copenhagen and from

an international supplier in India are the only valid options. The squatting plates are shipped into Juba as the main entry point for international humanitarian cargo in South Sudan. The onward

transportation from Juba to the affected locations is done via road, river or air. Field warehouses are

used as temporary storage in the disaster-hit regions of Rumbek, Malakal, Wau and Yambio. From these locations, items are distributed to UNICEF’s implementing partners for final distribution to the

beneficiaries.

Overall, 6 international supply chain staff were deployed to manage and support the operation together with 25 local staff with supply chain relevant functions. Figure 8 shows UNICEF’s supply

chain in the baseline scenario.

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Figure 8: Supply chain in UNICEF's baseline scenario

3.1.4 Inject Data for the Baseline Scenario Model Specific data on lead times, costs and capacities across all supply chain functions starting from assessment to final distribution were collected for injection in the baseline scenario model. Detailed

data and information provided can be found in the Annex.

3.2 Phase 2 Design Investment Scenario Based on the preparedness framework by Van Wassenhove (2006), five different investment elements (i.e. Personnel, IT/Processes, Prepositioning, Supplier Management and Local

Actors/Communities) were discussed with UNICEF. Concrete investment opportunities were

gathered and put into the context of the South Sudan operation. The data used to identify the

investment elements and evaluate their impact is both quantitative and qualitative. The majority data comes from historical sources and is validated and enriched through one-to-one and workshop

sessions with experts from headquarters to field staff. Nevertheless, several assumptions were

taken, jointly with the UNICEF experts, in order to model the chosen scenario. It should be noted that discussions around hypothetical investment measures and their potential impact did not deliver in all

cases sufficient input to be integrated in the model and are therefore only mentioned in the report

but not further analysed.


PERSONNEL Context

The performance of UNICEF’s supply chain and, therefore, the overall response, depends heavily on

the capacity, productivity and the skill set of its staff. At the same time, Personnel expenses represent a major cost component in particular in the case of international deployments.

Investment Opportunity Investment Impact

For the case of South Sudan, UNICEF

identified the establishment of a roster of local and regional staff and a

comprehensive training programme as

potential investment opportunities.

In the model, those investments result, first of all, in a

reduced need for international deployments in the future. Based on the data collected, the cost of an

international deployment for a month can be around

66% higher than having local staff in place; particularly

due to per diem and travel payments. In order to raise the level of local staff capacity through investments

related to Personnel, a time period of 90 days is

anticipated. During that time period, the capacity is

growing steadily which is reflected in the country readiness level in the model. Further, having a roster of

staff that rotates, for example, within the country and

amongst its duty stations, can provide better response mechanisms.

Synergies with other Investment Elements

The increased staff capacity (through trainings and rosters) will facilitate the activities related to other investment elements such as Supplier Management. Likewise, investments in elements such as

IT/Processes also increase the productivity and therefore complement the enhancement of (local)

staff capacity.


IT/Processes Context

The speed and quality of information flowing in a supply chain is determined by the establishment of

streamlined processes, the information technology and systems backing those processes up.


Based on UNICEF’s input, this investment element is

related to types of information technology and the

impact on UNICEF’s supply chain processes. UNICEF considers systems which are matching the operational

requirements, are well implemented and have great

impact to increase the transparency and streamline

working processes. The organisation has recognised that potential, works already with support of e.g. the

largely known SAP - and started investing into another

supply chain tool called LASEC to improve its data

support and transparency for offices around the world.

Investing into this element will generate

lead time savings, in particular during the

early stage of the response such as needs assessment phase. These can be generated

after an activation time of 180 days.

Synergies with other Investment Elements

Investments in IT/Processes will increase the productivity of staff as it reduces the need for manual

data input as well as lengthy authorisation processes and increases the visibility on available stock

piles and suppliers.

PREPOSITIONING Context

Having critical relief items readily available at strategically located depots before the emergency

occurs, brings obvious advantages but needs to be managed carefully to avoid extreme over

stocking or stock-outs as well as wrongly chosen locations.


UNICEF considers a total of 14’000 squatting

plates to be pre-positioned at all country

locations for strategic purposes. To fully build up that inventory, an activation time period of

198 days is anticipated, including shipment

time. The investment comes with holding cost until the goods are distributed and requires

significant funding being available to procure

the goods prior to any demand spikes.

The pre-positioning takes out any procurement

lead time and potentially also reduces

procurement and transportation expenses. As time is not critical during the preparedness

phase when the inventory is set up, slower but

cheaper transport modes can be chosen and better conditions can be negotiated with

suppliers outside of the hectic response period.

This will take an estimated 198 days due to

negotiations with suppliers (90 days) and the consecutive shipment time (108 days).


SUPPLIER MANAGEMENT Context

Assessing local markets to identify and evaluate available suppliers and commodities, building

relationships with selected suppliers and establishing framework agreements with traders are the essence of professional procurement practices. Note that even if the model does not consider cash

programmes for the context of South Sudan, it should be mentioned in general that market

assessments carried out as part of this investment element can also serve as a foundation for the

implementation of those.


UNICEF acknowledges that these tasks require

staff with the necessary competencies to

conduct analyses and engage with the suppliers as well as transportation service providers. To

reach that competency level, UNICEF would

dedicate its local experts to the topic and

potentially train the national team to carry out these activities.

In-depth market knowledge on available goods

and guaranteed quantities and prices through

framework agreements result in savings of procurement cost and time in the model. UNICEF

assumes that it takes 90 days to complete the

assessments and establish the agreements.

LOCAL ACTORS / COMMUNITIES Context

As UNICEF works with third parties to execute final distribution, this topic is out of scope for the

present study. In studies conducted with other organisations (and other countries), this investment element led to time savings in customs process (through enhanced coordination with Government),

time savings during assessment period and also increased distribution capacity (both due to

relationship management and coordination with municipalities and local population).


3.3 Phase 3 Calculate the Return on Investment Based on the pre-defined baseline scenario and the inputs provided on potential investments and their impact, the model calculates the maximum possible “RoI ratio” in terms of time and cost

savings over time (i.e. number of days between investment decision and disaster to hit). Figure 9

shows the summary of investments considered for this study whilst Figure 10 represents the overall

RoI results after 198 days of preparedness.

At that time, the maximum cost RoI ratio of 1:3 is reached. The investments made at that point in

time across all elements add up to USD 59’000 resulting in cost savings of USD 241’000 and time savings of up to 38 days.

Investments

Total Investments $59'074

HR / Personnel Global Roster, (Online) Trainings $35'282

IT & Processes LASEC $1'376

Supplier Management Local LTA $21'267

Prepositioning Prepo Stock $1'149

Local Actors (Out of Scope) $0 Figure 9: Investments made at day 198

Results

Type the day when the catastrophe is happening (between 1 to 911 days) 198

Investments

Return on Investment ratio (RoI) 1:3

Country readiness level 55%

Investment made $59'074

Costs

Total expenditure without investment $3'762'726

Total expenditure with investment $3'521'881

Costs savings $240'845

Costs savings percentage 7%

Time

Total lead time without investment 46

Total lead time with investment 8 Days

Lead time savings 38 Days

Lead time savings percentage 83% Figure 10: Overall results at day 198


Over time, a clear picture crystallises: After the major investments having materialised and after the maximum cost ROI ratio of 1:3 having been reached, the ROI ratio stabilises around 1:2. This can be

viewed in Figure 11.

Figure 11: ROI over Time

4. CONCLUSION

This study was conducted to investigate the impact of preparedness investments from a lead time and cost perspective in the context of an emergency supply chain and logistics response operation.

The entire supply chain for squatting plates in UNICEF’s South Sudan operation was analysed. The

findings demonstrated that it would be possible to achieve an investment ratio of 1:3 and reduce the

lead time by 38 days to 8 days.

These savings could be achieved by investing over a preparedness building period of 198 days in the

4 key investment elements of Personnel, IT/Processes, Pre-positioning and Supplier Engagement.

More time would naturally be needed to fully develop the potential of the investments, but this short period would already be able to generate significant improvements in UNICEF’s supply chain

processes.

Interestingly, the model demonstrates that even if the RoI cost ratio declines after the maximum of 1:3 has been reached, it then stabilises at a ratio of around 1:2 for a long period of time. The reason


is the strong investment focus on local supply chain capacity building which reduces the need for costly international deployments and international air shipments. Basically, local capacity building

benefits the organisation over the longer term.

The model accounts for synergy between investments and therefore, the investment in a combination of elements reveals further potential. In the analysed context, the preparedness

investment can therefore be considered as entirely beneficial with no risk of becoming

disadvantageous to a situation when funding is only provided in the aftermath of a disaster.

The results indicated that, whilst UNICEF has quite sophisticated structures, systems and processes it

is still able to generate additional cost and time savings returns with a further investment.

The findings of the previous studies with ACF, SCI and IFRC have been presented to a number of institutional donors at the Humanitarian Liaison Working Group meeting in Geneva on 17 September

2018. The presentation, in particular the data-based methodology, was very well received. The

reaction showed the openness of donors to change their view on traditional funding streams and

channel more funding towards supply chain preparedness.

Based on the lessons learnt from the three RoI studies (conducted with ACF France, IFRC and SCI) as

well as this current result with UNICEF, HELP Logistics and KLU suggest the next steps could be

focused on three possibilities.

Firstly, this study comprehensively proves that the RoI can be quantified in supply chains in the

humanitarian context. Yet the common understanding on the relevance, importance and potential of

supply chain, in particular in preparedness activities, is not widely accepted yet. Despite the success of the studies and the attention gained further advocacy with donors and humanitarian agencies is

needed.

Secondly, a comprehensive monitoring and evaluation approach is needed to measure the impact of

the investments. As the model shows, investments take time to fully deliver their potential.

Therefore, mechanisms need to be in place during the implementation phase, not only to accurately

measure RoI, but to transform the funding behaviours in the current humanitarian ecosystem.

Thirdly, whilst the current model is based on an established framework, requests have been

received to expand the model. For example, it was suggested to add elements that represent the

growing relevance of cash programmes, allowing resources to be deployed outside of the analysed country and looking into other aspects beyond time and cost savings; such as environmental and

social impact of supply chain preparedness investments.


ACKNOWLEDGEMENTS

This report was written by Lea Stegemann and Jonas Stumpf (HELP Logistics – A Programme of the

Kuehne Foundation). The authors would like to express their appreciation towards the Global Logistics Cluster team for initiating this project and UNICEF for the many inputs given by the teams in

Denmark (particularly Charles Okoth Menya, Pablo Llopis, Rune Clausen, Kim Hansen, Lena Romer,

Sorin Buruiana, Fabiana Biasini, Patrick Efinda, Anne Cabrera-Clerget) as well as South Sudan

(particularly Tom Olsen and James Franco Lomundu). Furthermore, we would like to express our gratitude for the support from Kuehne Foundation and Kuehne Logistics University that was provided

throughout the process (Seán Rafter and Professor Maria Besiou).

REFERENCES

Guerrero-Garcia, S., Lamarche, J.-B., Vince, R., Cahill, S., & Besiou, M. (2016). Delivering in a Moving World

Stegemann, L., Stumpf, J. (2018). Investing in Supply Chain Preparedness – A Cooperative Study (…)

[with] SCI.

Stegemann, L., Stumpf, J. (2018). Supply Chain Expenditure and Preparedness Investment

Opportunities – A Cooperative Study (…) [with] the IFRC.

UNDP (2012). Putting resilience at the heart of development – Investing in prevention and resilient

recovery

Van Wassenhove, L. (2006). Humanitarian aid logistics: supply chain management in high gear. Journal of the Operational Research Society, Vol. 57/5, 475-489.

HELP Logistics AG

Dorfstrasse 50

CH–8834 Schindellegi Tel. +41 44 786 96 70

[email protected]

www.kuehne-stiftung.org

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